Insurance 101 – What Is It And Why Do I Need It?

Generally, insurance is a contract in which an insurance company agrees to indemnify you against a specific, unexpected covered loss. The idea behind insurance is that if many people pay premiums, and only a certain percentage of those people suffer losses, the insurance company will have enough money to pay the losses out of the premium received from all insureds.

Think about it this way – if a disaster struck (think tornado, fire, etc.) causing you to lose your home, for most people it would be pretty difficult to come up with the money to rebuild the house and replace the contents. For that reason, people consider buying insurance. Hopefully it is unlikely that you will suffer such a loss, but in the event you do, you will want to have insurance so that you will not be in the position of losing everything and having to pay for it. Insurance basically serves as a pool of money that you pay into. If all goes well, you will never need it (instead, the money goes to pay for others’ losses, toward the running of the company or becomes part of the company’s profit). But even if you never need it, your money spent is not wasted – it buys you peace of mind. And, if in the event of a loss in which you do need your insurance, you will be glad you have it.

Insurance only covers an unexpected, accidental loss. You can’t go out and purchase insurance after your home has been destroyed by a tornado or fire. So, you have to plan in advance and purchase insurance before you suffer a loss. Having no insurance is a gamble – if you are lucky and never suffer a major loss, you “win.” But, if you aren’t so lucky and do suffer a loss, your loss is big, potentially huge. And, do you really want to live your life knowing that you are gambling on your future?

Here are some general areas you may want to think about in terms of purchasing insurance: for your home, condominium or apartment, for your health, for your life, for your business, and for your personal valuables or auto insurance. Just remember, it is not only your future you are protecting, but that of your family as well.